Due diligence is a vital method of evaluating a company which is being offered for sale. It covers everything from financial and legal to environmental and operational. Due diligence is required for two kinds of transactions: selling a company and merging or buying another. Each type of transaction has its own specific complexities that prolong the duration and intensity of the process.
Identify Your Needs
The process of due diligence reveals numerous issues that could undermine the deal, which is why it’s important to consider your priorities and plan according to your needs. You should also understand how the due diligence results affect your deal and the terms you provide. For instance is the business reliant heavily on a couple of customers? Do you anticipate churning happening in the future? Take these questions into consideration to help you set expectations in advance with the vendor.
Be prepared to be thorough
Individual buyers are less thorough with their due diligence than companies. This is largely due to their own personalities (e.g., they may be more cautious or focused on detail) It’s also due to their dependence on professional advisors who have their own hourly rates to bill. However, preparing for the due diligence process as early as you can increases your chances of an efficient and quick sale.
To streamline communications and reduce the number of reviewers who have access to information, designate a person to be the point of contact. This will help you avoid delays and ensure that all issues are dealt with and resolved in a timely manner. It will also be easier to convince the buyer that the due diligence time can be reduced in the event that you are organized and ready to begin.
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